Maximize Your Investment: Picking the Right Real Estate Market

There’s no question that buying real estate is an investment. A home isn’t just a place you’ll live for a few years – it’s an investment that you’re sinking your money into, and you should make investment decisions with all due consideration. Buying the prettiest home on a block where the homes are low-value may be practical, but it isn’t a smart investment. To make the most of your home purchase, you should understand the difference that appreciation can make in the right real estate market – and consider the market you’re buying into before you make your final decision.

The Difference Appreciation can Make

Short term fluctuations and wobbles aside, real estate appreciation makes buying a home a significant investment. Over the past 100 years, residential real estate has appreciated at a rate of approximately 4 percent per year. If you invest in a market that has a slightly higher appreciation rate – for example, 5 percent per year – your investment could be worth 34 percent more at the end of 30 years.

Let’s look at some real money. Say you’ve invested $1 million in real estate 30 years ago. At the average appreciation rate – 4 percent – it would be worth $3.2 million today. In a market that appreciates at 5 percent, it would be worth $4.3 million today – more than $1million higher than the slower market.

What about a more significant market improvement? In 1975, you could buy a single-family home in Aspen for $83,563. By 2012, the average single family home sale had risen to $6.17 million in aspen – an annual rate of appreciation of nearly 12 percent. In an average market of 4 percent, that same home would be worth approximately $370,000 today. Choosing the right market for your investment can make a big, big difference.

Ultimately, you must balance investment potential with practicalities – how far will you drive to get to work everyday, or how far must you go to the grocery store or other shopping? Don’t underestimate the importance of making a good investment, though – it can make a huge difference in your future financial security.